With more people than ever now working from home, garden offices have been soaring in popularity. Whether it’s a need for work/life balance and separation, a dedicated space to stay organised or meet with clients professionally, or simply somewhere to not be disturbed, garden offices are an attractive solution.
In this article, we will guide you through the multiple tax considerations when it comes to putting the costs through your limited company.
Structures and Building Allowance
This allowance strictly prohibits any tax relief on residential property, any other building or structure that functions as a dwelling, or the purchase of land. Therefore, there would be no tax relief available for the initial cost of materials or construction of the garden office.
Likewise, there is no allowance for any related costs such as planning request or application fees. If you purchase the garden office through your limited company, be advised that because there are no allowances and it isn't an allowable business expense the cost of the office will not reduce your corporation tax bill.
You will be able to claim a 100% deduction on internal fittings that are purchased for the garden office e.g. any furniture or computer equipment. Additionally, you can also claim smaller amounts on the cost of any utilities such as electrical wiring as this is deemed an integral feature. We would suggest keeping invoices for this sort of work so that we can use it to assist with the claim.
If your limited company is VAT registered, then it may still be advantageous to pay for the cost of the garden office through the company despite not being able to offset any costs against your corporation tax bill. Some costs can be recovered through reclaiming on VAT.
If you are on the flat rate scheme, the usual rules would apply. As an example, if you were looking to claim on the cost of the materials, these would have to be bought in a single transaction totalling at least £2,000.
Another note of consideration is that VAT cannot be reclaimed where there will be any significant personal use of the garden office.
If your garden office has been purchased through your limited company, you would need to consider whether there is any personal usage - even minor personal usage such as storage.
If there is any personal usage it is likely that you will incur personal income tax and both employer and employee National Insurance due to receiving a benefit-in-kind. Normally we would suggest keeping the garden office 100% for business use with only incidental private use.
Allowable Business Expenses
When purchasing a garden office, its important to consider the ongoing running costs. Whilst this isn't a tax implication, the running costs such as electricity, broadband & heating costs over the winter are all allowable business expenses.
In most cases these charges will be added onto the personal consumption of utilities for the whole property. Therefore, you will need to calculate a fair percentage of the bills to allocate as business expenditure. For further advice on this, please reach out to us via intercom in the bottom right corner of Ember and we can provide you with an expenses calculator.
Capital Gains Tax
Capital Gains Tax will only need to be considered when it comes to selling your home. In most instances CGT does not apply when selling your main residence. If your garden office has had personal use no CGT will apply even in instances where it has been purchased by your limited company. If it was used wholly and exclusively for business use, CGT may be applicable.
Whether or not Capital Gains Tax will apply will be dependent on the type of garden office you have erected. If it is one which can be dismantled and taken away to your next property, then there will be no CGT. If it is a more permanent structure that will remain after the sale, a valuation on the garden office alone may be sufficient to show that it has not increased in value and therefore no gain has arisen.
Business Rates on Garden Office
It is possible, though very unlikely, that your local council may want to assess your garden office to determine whether its liable to pay business rates. You do not usually have to pay business rates for home-based businesses unless there is clear evidence that your home has commercial use such as a distinct and separate area for business.
In the rare instance your council does decide business rates apply, you should be able to alleviate the cost with small business rates relief.
If you would like to discuss this further, please feel free to reach out to our dedicated team of expert accountants here at Ember who can assist you with any further queries.